New Tax Withholdings

The IRS issued new tax withholding tables for employers in January 2018, designed to reflect the new tax law passed in December 2017. By now, you’ve probably seen the results in a higher net paycheck. Seems like a pretty nice deal. But will you feel the same way next tax season?

 

The new tax withholding tables may not account for all of your income and deductions, which could result in under- or over-withholding income taxes compared to your tax liability. You could end up giving the government an interest-free loan — your refund. Or, you could end up having to pay a chunk of money when you file. You could even owe interest and penalties!

 

How can you avoid all of that? Compare your withholdings and any estimated tax payments to your projected tax liability. More easily said than done.

 

You have two options for verifying that your taxes are covered for next tax season:

 

  1. Do It Yourself (DIY)

Most people have all the information needed to figure out if their tax withholdings are enough to cover their tax liability. Pay stubs or online pay information reflect how much you earn and have withheld each pay period and year-to-date. Apply a little arithmetic to the pay information, and you can figure out your income and withholdings for the year. Have a completed copy of your most recent tax return handy. Information on that return can help you estimate income and other items for 2018.

 

It’s really important to know about the new tax law changes to estimate your 2018 income and deductions. To help with that, the IRS published a Withholding Calculator at https://www.irs.gov/payments/tax-withholding so taxpayers can make sure they have the right amount of withholding.

 

  1. Get Professional Help

No, not that kind of professional help. I mean help from a tax professional. The IRS Tax Calculator may be a great tool for taxpayers with simple situations. People with more complicated financial situations might need to meet with a tax preparer to get insight on how 2018 will differ from 2017 because of the new tax law. Sure, you’ll pay a fee for that service, but peace of mind is extremely valuable.

 

Avoid expensive surprises next tax season by figuring out now whether your tax withholdings will cover your 2018 income tax liability. Whether you Do It Yourself or get help from a tax professional, you’ll have peace of mind that your taxes are covered.

 

Patience and the New Tax Law

Around this time every year, there’s a lot of talk about taxes at home, at work, and on TV. Those tax talks have become more urgent with the December 2017, passing of the Tax Cuts and Jobs Act. The new tax law impacts every individual and business taxpayer. How it impacts you and your tax bill depends on many factors – family size and composition, income sources, and geographic location.

 

One thing is for sure, answers about how the new law will impact your tax bill are not quick or easy. Figuring it out will take some patience and time. A lack of patience and a rush to act may backfire on some taxpayers. How to interpret the new law is not entirely clear. Remember the lines to pre-pay real estate taxes in high-tax states? The IRS announced those payments would not be deductible without a tax bill in hand. Some tax experts disagree. Who is right?

 

Less than a month after passing a new law is too soon for all the details and unintended consequences to be fully explained. The Tax Courts are filled with cases where each party is interpreting the law differently. However, some tax projection calculators are available to help many taxpayers determine what their new income tax bill will look like. One issued recently by the Tax Policy Center appears to be easy to use – http://tpc-election-calculator.urban.org/.

 

An online tax calculator cannot address all possible scenarios and considerations. Taxpayers with more complex situations and decisions, such as business owners, should schedule a consultation with a qualified tax professional. For a tax professional to serve your needs, be prepared to discuss your current family, income, business, and investments. Also share information about impending or planned changes in your situation. Those details make a big difference in the tax advice that is right for your situation.

 

Your tax professional will use the information you provide to project, analyze, and identify tax planning opportunities based on your situation. Figuring it out takes patience and time. Yes, it’s still too early to know all the details about the Tax Cuts and Jobs Act. But being patient and investing time with a qualified tax professional will get you started on the right track.